Strategy–

Structure Fit
 What is Strategy–Structure Fit?
• The alignment between a company’s
organizational structure and its strategy.
• Coined by Alfred Chandler: "Structure follows
strategy."
• Misalignment leads to inefficiency and poor
performance.
 Strategy Structure Fit
To implement its strategy successfully a firm must have an
appropriate organisational structure. An organisational
structure is a set of formal tasks and reporting relationships
which provide a framework for control and coordination
within the organisation. The visual representation of an
organisational structure is called organisational chart. The
purpose of an organisational structure is to coordinate and
integrate the efforts of employees at all levels – corporate,
business and functional levels – so that they work together
to achieve the specific set of strategies
Why Strategy–Structure Fit Matters
• Supports clear roles and responsibilities
• Enables effective resource use
• Speeds up decision-making
• Enhances coordination across units
 Organisational structure
Organisational structure is a tool that managers
use to harness resources for getting things done.
It is defined as:
1. The set of formal tasks assigned to individuals
and departments.
2. Formal reporting relationships, including lines
of authority, responsibility, number of hierarchical
levels and span of manager’s control.
3. The design of systems to ensure effective
coordination of employees across departments
 Types of Organisational Structures
• Simple structure
• Functional structure
• Divisional structure
• Matrix structure
• Network structure
• Virtual structure
SIMPLE STRUCTURE
 Functional structures

Functional structures are grouped based on major functions

performed. Each function is led by a functional specialist. Functional
structures are formed in organisations in which there is a single or
closely related products or services.
 Divisional Structures
Divisional structures are used by diversified
organisations. In a divisional structure, divisions are
created as self-contained units with separate functional
departments for each division. A division may be
organised around geographic area, products, customers
etc. The head office determines corporate strategy,
allocates resources among divisions and appoints and
rewards the heads of these divisions. Each division is
responsible for product, market and financial objectives
for the division as well as their division’s contribution to
overall corporate performance
 Matrix Structure
The matrix structure is, in effect, a combination of
functional and divisional structures. In this structure, there
are functional managers and product or project managers.
Employees report to one functional manager and to one or
more project managers. For example, a product group
wants to develop a new product. For this project it obtains
personnel from functional departments like Finance,
Production, Marketing, HR, Engineering etc. These
personnel work under the product manager for the duration
of the project. Thus, they are responsible for two managers
– the product manager and the manager of their functional
area.
 Virtual Structure
This is an extension of the network structure. In this
approach, independent organisations form temporary
alliances to exploit specific opportunities, then disband
when their objectives are met. The term virtual means
“being in effect but not actually so”. The virtual
organisations consist of a network of independent
companies – suppliers, customers or even competitors
– linked together to share skills, costs, markets and
rewards. The members of a virtual organisation pool
and share the knowledge and expertise of each other.
Structure Types and Strategy Alignment
• Functional – Cost leadership, efficiency (e.g.,
manufacturing firms)
• Divisional – Diversification, market expansion
(e.g., GE)
• Matrix – Innovation and R&D (e.g., tech firms)
• Network/Flat – Flexibility and speed (e.g.,
startups)
Examples of Strategy–Structure Fit
• Chandler’s Study: Firms restructured after
adopting new strategies
• Apple: Functional structure supports
innovation
• Amazon: Functional + Divisional for
operational efficiency and responsiveness
 Achieving Strategy–Structure Fit
• 1. Assess the strategy
• 2. Analyze if structure supports it
• 3. Redesign structure if needed
• 4. Monitor and adapt over time
 Key Takeaways
• No single best structure – it depends on
strategy
• A great strategy needs the right supporting
structure
• Structure may also influence strategy in return
 Strategic Leader
Leadership is the art and process of influencing people
so that they will strive willingly and enthusiastically
towards achievement of the organisation’s purpose.
Specific styles of leadership are often associated with
specific approaches to the crafting and execution of
strategies. The organisation’s purpose and strategy do
not just drop out of a process of discussion, but are
actively directed by an individual with strategic vision,
whom we call “strategic leader”
 Strategic leadership
Strategic leadership establishes the firm’s direction by developing
and communicating a vision of the future and inspiring
organisation members to move in that direction. Unlike
managerial leadership which is generally concerned with the
short-term day-to-day activities, strategic leadership is concerned
with determining the firm’s strategy, direction, aligning the firm’s
strategy with its culture, modeling and communicating high
ethical standards, and initiating changes in the firm’s strategy
when necessary. The most successful leadership is not just to
define the vision and mission of an organisation in a cold,
abstract manner but to communicate trust, enthusiasm and
commitment to strategy.
 Role of a Strategic Leadership
Leaders play a central role in performing six critical and
interdependent activities in implementation of strategies:
• Clarifying strategic intent
• Setting the direction
• Building an organisation
• Shaping organisation culture
• Creating a learning organisation
• Instilling ethical behaviour
 Research has found that some leadership approaches are more
effective than others for bringing about change in organisation.
Leadership Three types of leadership that can have a substantial impact are
transactional, transformational and charismatic leadership.
Approaches These types of leadership are briefly explained
 Transactional leaders clarify the role and
task requirements of subordinates, initiate
structure, provide appropriate rewards, and
try to be considerate to and meet the social
needs of subordinates. The transactional
leader’s ability to satisfy subordinates may
improve productivity. Transactional leaders
Transactional excel at management functions. They are
hardworking, tolerant, and fair minded.
Leaders They take pride in keeping things running
smoothly and efficiently. Transactional
leaders often stress the impersonal aspects
of performance, such as plans, schedules
and budgets. They have a sense of
commitment to the organisation and
conform to organisational norms and values
 Transformational leaders have a special
ability to bring about innovation and
change. They encourage the followers to
question the status quo. They have the
ability to lead change in the organisation’s
mission, strategy, structure and culture as
well as promote innovation in products and
Transformational technologies. Transformational leaders do
leaders not rely solely on tangible rules and
incentives to control specific transactions
with followers. They focus on intangible
qualities such as vision, shared values, and
ideas to build relationships and find
common ground to enlist in the change
process.
 Charismatic leadership goes
beyond transactional and
transformational leadership.
Charisma is a “fire that ignites
followers’ energy and commitment,
producing results above and
Charismatic beyond the call of duty”. The
leadership charismatic leader has the ability to
inspire and motivate people to do
more than what they would
normally do, despite obstacles and
personal sacrifice. Followers
transcend their own self interests
for the sake of the leader
 Corporate Culture and Strategic
Management
A Company’s culture is manifested in the values and
business principles that management preaches and
practices.
Culture is manifested in:
• Corporate stories
• Attitudes and behaviours of employees
• Core values
• Organisation’s politics
• Approaches to people management and problem solving
• Relationships with stakeholders; and
• Atmosphere that permeates its work environment
An organisation’s culture is similar to an individual’s
personality. Just as an individual’s personality
influences the behaviour of an individual, the shared
assumptions (beliefs and values) among a firm’s
members influence the opinions and actions within
that firm. Quite often, the elements of company
culture originate with a founder or other early
influential leader who articulates the values, beliefs
and principles to which the company should adhere.
These elements then get incorporated into company
policies, a creed or value statement, strategies and
operating practices.
Over time, these values and practices become
shared by company employees and managers.
•Culture is thus perpetuated as:

• New leaders act to reinforce them

• New employees are encouraged to adopt and
follow them
• Stories of people and events told and retold
• Organisation members are honoured and
rewarded for displaying cultural norms.
 Influence of Culture on Behaviour
An organisation’s culture can exert a powerful
influence on the behaviour of all employees. It can,
therefore, strongly affect a company’s ability to
adopt new strategies. A problem for a strong culture
is that a change in mission, objectives, strategies or
policies is not likely to be successful if it is in
opposition to the culture of the company. Corporate
culture has a strong tendency to resist change
because its very existence often rests on preserving
stable relationships and patterns of behaviour.
 Example
The male-dominated Japanese centered corporate
culture of the giant Mitsubishi Corporation created
problems for the company when it implemented its
growth strategy in North America. The alleged sexual
harassment of its female employees by male
supervisors resulted in lawsuits and a boycott of the
company’s automobiles by women activists.
There is no one best corporate culture. An optimal culture is one
that best supports the mission and strategy of the company. This
means that, like structure and leadership, corporate culture should
support the strategy. Unless strategy is in complete agreement
with the culture, any significant change in strategy should be
followed by a change in the organisation’s culture. Although
corporate cultures can be changed, it may often take long time and
requires much effort. A key job of management therefore involves
“managing corporate culture”. In doing so, management must
evaluate what a particular change in strategy means to the
corporate culture, assess if a change in culture is needed and
decide if an attempt to change culture is worth the likely costs.
 Creating Strategy Supportive Culture

Once a strategy is established, it is difficult to

change. It is the strategy-maker’s responsibility to
select a strategy compatible with the organisation’s
prevailing corporate culture. If it is not possible,
once a strategy is chosen, it is the strategy
implementer’s responsibility to change the
corporate culture that hinders effective execution
of a chosen strategy.
 Changing a Problem Culture
Changing a company’s culture to align it with strategy is
one of the toughest management tasks. This is because
the deeply held values and habits are heavily anchored,
and people cling emotionally to the old and familiar. It
takes concerted management action over a period of time
to root out certain unwanted behaviours and instill
behaviours that are more strategy-supportive. Changing
culture requires competent leadership at the top. Great
power is needed to force major cultural change, to
overcome the spring back resistance of entrenched
cultures, and great power normally resides only at the top
 Changing a problem culture involves the
following four steps

• Step 1: Identify facts of present culture that are

strategy – supportive and those that are not.
• Step 2: Clearly define desired new behaviours and
specify key features of “new” culture.
• Step 3: Talk openly about problems of present
culture, and how new behaviours will improve
performance.
• Step 4: Follow with visible, aggressive actions
to modify culture.
 Managing Culture Change
As already explained in earlier sections, the culture that an
organisation wishes to develop is conveyed through rites,
rituals, myths, legends, actions etc. Only with bold leadership
and concerted action on many fronts can a company succeed
in tackling a major cultural change. Top leadership should play
a key role in communicating the need for a cultural change
and personally launching actions to prod the culture into
better alignment with strategy. Changing culture requires both
(a) Symbolic actions and (b) Substantive actions. They require
serious commitment on the part of the top management
 The following measures are helpful in
building a strategy supportive culture
• Emphasise key themes or dominant values: Leaders must
emphasise dominant values through internal company
communications. They must repeat at every opportunity the
messages of why cultural change is good for the company.
• Stories and legends: Leaders must tell stories, anecdotes and
legends in support of basic beliefs. Organisational members
must identify with them, and share those beliefs and values.
• Rewards: Visibly praising and generously rewarding people
who display new cultural norms will slowly change the culture.
• Recruiting and hiring: New managers and employees are to be
recruited who have the desired cultural values
Revising policies and procedures in ways that will help the
new culture.
• Leading by example: If the organisation’s strategy involves
low-cost leadership, senior management must display in
their own actions and decisions, inexpensive decorations in
the executive suites, conservative expense accounts and
entertainment allowances, lean corporate allowances, few
executive perks, and so on.
• Ceremonial events: In ceremonial functions, companies must
honour individuals and groups who exhibit cultural norms
and reward those who achieve strategic milestones.
• Group gatherings: Top management must participate in
employee training programmes etc. to stress strategic
priorities, values, ethical principles and cultural norms.
Every group gathering must be seen as an opportunity
to repeat and ingrain values, praise good deeds,
reinforce cultural norms and promote changes that
assist strategy implementation. Thus, best companies
and best executives expertly use symbols, role
models, and ceremonial occasions to achieve the
strategy-culture fit.
When merging or acquiring another company, top
management must give some consideration to a
potential clash of corporate cultures. Integrating
cultures is a top challenge to a majority of companies.
It is dangerous to assume that the firms can simply be
integrated into the same reporting structures. The
greater the gap between the cultures of the two
firms, the faster executives in the acquired firm quit
their jobs, and valuable talent is lost
There are four general methods of managing two different cultures.
They are: (1) Integration (2) Assimilation (3) Separation, and (4)
Deculturation.
1. Integration: involves merging the two cultures in such a way that
separate cultures of both firms are preserved in the resulting culture.
2. Assimilation: Here, the acquired firm willingly surrenders its culture
and adopts the culture of the acquiring company.

3. Separation: Here there is a separation of the two companies’

cultures. They are structurally separated, without cultural exchange.

4. Deculturation: This involves imposition of the acquiring firm’s

culture forcefully on the acquired firm. This often results in much
confusion, conflict, resentment and stress